Rolls-Royce Group plc Interim Results 2006

27 July 2006

Group Highlights

* Order book increased to £25.1bn (2005 half-year £23.0bn).
* Sales increased to £3,390m. Sales on an underlying* basis increased by nine per cent.
* Aftermarket services sales represented 54 per cent of Group sales.
* Underlying profit before financing costs** increased to £345m, up 12 per cent. Profit before financing costs was £361m.
* Underlying profit before taxation** increased to £324m, up 22 per cent.
* Cash inflow of £122m (2005 half-year £180m).
* Average net cash of £83m (2005 half-year £377m average net debt), an improvement of £460m.
* Interim payment to shareholders increased by ten per cent to 3.67p per share.

* Underlying sales reflect the exclusion of the IAS 39 hedge reserve adjustments and the inclusion of the benefit of settled foreign exchange transactions, and is consistent with underlying profit presentation.
** Adjustments for underlying profits are included in Note 2. Underlying profits reflect a level of performance that excludes items considered to be non-operating in nature (see notes 2 and 3).

Sir John Rose, Chief Executive, said:

"We have continued to make good progress, despite the challenges of a weak US dollar and increased raw material costs.

“The strength of our order book, continuing growth of services sales and our progress with efficiency improvements support our expectations of increased profits and positive cash flow for 2006. As a result we have increased our interim payment to shareholders by ten per cent.”

Group Overview

Rolls-Royce continued to make good progress in the first half of 2006, with increased profit and positive cash flow.

The Group’s performance has been built on a consistent strategy, supported by investment in market access, technology and capability. Its balanced business portfolio has demonstrated its value, creating a broad market access and reducing volatility associated with individual programmes or economic cycles. The Group operates in markets with extraordinarily long product life cycles, with high barriers to entry and good, long-term visibility.

This growth has been achieved despite the weakening US dollar exchange rate achieved by the Group, increasing materials costs and pressure on the global supply chain. The focus on cost reduction and increased efficiency within the Group’s operations and supply chain and its increasing emphasis on overhead reduction are helping the Group to deal with these headwinds.

Aftermarket services sales increased by six per cent on an underlying basis and represented 54 per cent of Group sales. The Group continues to expect double-digit growth in aftermarket sales for the full year.

Underlying profit before tax increased by 22 per cent to £324m and a cash inflow of £122m was generated, resulting in positive net cash of £457m on the balance sheet at the end of June (2005 half-year net debt £37m). Average net cash of £83m represented a £460m improvement over the £377m of average net debt for the same period in 2005.

Underlying earnings per share rose 23 per cent to 13.62p (2005 half-year 11.05p) and basic earnings per share were 35.86p (2005 half-year 6.88p). An interim payment to shareholders has been declared of 3.67p per share (2005 half-year 3.34p), an increase of ten per cent.

The introduction of new products and the continued success of existing programmes have once again resulted in strong order intake for the period. New orders in the first half of 2006 reached £5.1bn (2005 half-year £6.4bn), and brought the period-end firm and announced order book to £25.1bn (2005 half-year £23.0bn).

The Group continues to concentrate on its three key priorities of focused investment in technology and products, improving operational efficiency and developing its aftermarket services.

Rolls-Royce opened a new University Technology Centre in Dresden, Germany, focused on lightweight materials; signed a research collaboration agreement with Pusan University, Korea, on advanced heat-exchangers; and opened the Rolls-Royce Centre of Excellence for Aerospace Materials at the National Institute for Materials Science in Tsukuba, Japan.

The Group made further progress with its factory modernisation programme. The latest in its series of new facilities was opened at Barnoldswick, in the UK, and investment in Derby, Bristol and Indianapolis continues in order to improve productivity and reduce costs by developing world-class manufacturing facilities and processes.

The Group has continued to expand its services capabilities. The recently opened repair and overhaul facility in Derby is now fully operational. Hong Kong Aero Engine Services Limited, of which Rolls-Royce owns 45%, announced plans to expand its capacity to cater for growing regional repair and overhaul activity. Construction began in Germany of the fifth Trent engine overhaul facility, a joint venture between Rolls-Royce and Lufthansa Technik. The Group took full control in March of Data Systems & Solutions, its former joint venture with SAIC in predictive services.

Prospects

Rolls-Royce is addressing four long-term growth markets. The Group’s consistent investment in technology and new products and services is creating the opportunity for organic growth in each sector.

As the sales from aftermarket services continue to grow, the Group expects cash flow to continue to be positive, after maintaining its level of investment in technology, product development and capability.

The Group has continued to pursue its strategy of hedging future net dollar revenues and is using its hedge book, in conjunction with cost reduction initiatives and further ’dollarisation’ of the cost base to enable it to continue to increase underlying profits while absorbing the effects of the weaker US dollar exchange rate.

Continued progress is expected in the remainder of 2006, underpinned by the strong order book, growing services sales and increasing efficiency. As a result, the Group expects increased underlying profits and a positive cash flow for the 2006 full year.

Download the full press release here: www.rolls-royce.com/investors/results/interims06.pdf

Contact Information

Caroline Harris

Director of Corporate Communications

Rolls-Royce

Contact via E-mail